Flashlight Capital Submits Shareholder Proposals for KT&G’s 2023 General Meeting
Nominates Two Respected Korean Business Leaders – Including the CEO of LG H&H and the Former CEO of Prudential Life Korea – for Election to the Company’s Board of Directors
Shares Detailed Additional Proposals, Including a Spin-off of KT&G’s Ginseng Business, a Share Buyback Increase and Dividend Issuance, and the Establishment of a Compensation Committee
Visit www.FlashlightCap.com to Learn How to Support Flashlight Capital’s Shareholder Proposals at KT&G’s 2023 General Meeting
Dear Fellow Shareholders,
Over the past several weeks,
Today, we are writing to make you aware that
The Election of Two Highly Respected, Korea-Based Executives as Directors.
We believe that shareholder-nominated directors with impressive track records of value creation can help align the Company’s interests to that of its investors and catalyze a new, high-growth era for KT&G. Flashlight Capital’s director candidates –
Suk Yong Chaand Ou Jin Hwang– possess Chief Executive Officer (“CEO”) and public company board experience, Korean consumer business leadership expertise and impressive track records of exceptional revenue growth and shareholder value creation. Mr. Chahas served as the CEO and Chairman of the Board of LG H&H (KRX: 051900), where he has been responsible for 18 years of consecutive growth (2,833.4%+ in stock price appreciation) and was recognized as one of the top leaders in Korea.1 Mr. Hwangwas previously CEO of The Prudential Life Insurance Company of Korea, Ltd.(NYSE: PRU) (“Prudential Life Korea”), where he led changes in the Korean insurance market that more than doubled revenues over a seven-year period.
A Corporate Spin-off of KT&G’s Ginseng Business,
Korea Ginseng Corp(“KGC”). Spinning-off KGC from the Company’s tobacco business can strengthen KT&G’s brand value, global competitiveness and unlock significant value for stakeholders. We believe that as a standalone company, KGC will get its fair valuation from the market and can have a market capitalization of KRW 3.6 trillion( $2.9 billion). Ginseng and tobacco are inherently different, so we believe a separation will also free KGC from certain environmental, social and governance (“ESG”) investment restrictions that have prevented many institutional investors from venturing into the stock.
The Issuance of a Dividend. Since 2007, KT&G has distributed 60% of its net income to shareholders, while relevant global peers have distributed close to 100%.
Flashlight Capitalis proposing KT&G return reserves amounting to KRW 10,000per share (11% dividend yield) or KRW 1,163 billionto shareholders vs. over KRW 7 trillionin reserves accumulated over the past 15 years. As we outline below, Flashlight Capitalis proposing the Board amends the Company’s Articles of Incorporation to introduce quarterly dividends and retire treasury shares accounting for 15% of total shares in line with the practice of global peers.
An Increase of KT&G’s
Share Repurchase Program. Among the global top five, KT&G is the only tobacco company that holds net cash. We propose KT&G buys back
KRW 1,163 billion, which will still allow the Company to hold net cash while investing for future business growth. Together with the proposed cash dividend, this will deliver shareholder returns representing a third of the surplus KRW 7 trillionof cash on KT&G’s balance sheet.
Amending Articles of Incorporation to Create a
Flashlight Capitalbelieves that establishing a Compensation Committee consisting of three or more independent directors will help KT&G modernize its pay structures for leaders and establish more incentives. Creating more performance incentives aligned to shareholder value creation can lead to KT&G closing the Company’s massive valuation gap.
In the coming weeks, we intend to issue a public presentation to provide the market with a very clear sense of our plan to unlock the Company’s full value by improving KT&G’s governance, operations and performance.
We thank you in advance for your consideration and willingness to evaluate our proposals. To learn more about our plan to help catalyze positive change at KT&G, visit www.FlashlightCap.com.
DIRECTOR CANDIDATE BIOGRAPHIES
Suk Yong Chais the CEO and Chairman of the Board of LG H&H, where he has been responsible for 18 years of consecutive growth and was recognized as one of the top leaders in Korea. He has a track record of extraordinary value creation in the consumer goods industry, which would be additive to KT&G’s Board.
Mr. Chahas served as the CEO and Chairman of the Board of LG H&H (KRX: 051900), a producer of household goods that manages cosmetics, household goods and beverages business, where his leadership recognized him as one of the best managers in Korea.
Former President of
Procter & Gamble(NYSE: PG) (“P&G”) Korea, multinational consumer goods corporation, and Former President and CEO of P&G Ssangyong Paper, a paper-making company.
- Former CEO of Haitai Confectionery and Foods Co Ltd. (KRX:101530), a manufacturer of instant foods, such as confectionery, beverages and ice creams.
Mr. Chalives in Koreaand holds an MBA from Cornell Universityand a JD course of Indiana University School of Law.
- Since 2005,
Ou Jin Hwangis the former CEO of Prudential Life Korea where he led changes in the Korean insurance market that more than doubled revenues over a seven-year period. His executive and board leadership experience improving governance, company operations and reorganizing non-core assets would be additive to KT&G’s Board.
Held roles of increasing responsibility at Prudential Life, including serving as the Chief Marketing Officer of
Former board member of
ADT Caps(now known as SK shieldus), the 2nd largest security services company in Korea, where he led business structure improvements and governance activities to improve communication between shareholders and management.
Former Vice Chairman of
Ceragem Group, a global healthcare company, and CEO of Ceragem Health & Beauty, a professional global health & beauty care company introducing cosmetic products made from natural ingredients.
Mr. Hwanglives in Koreaand holds a degree from Sogang University Graduate School of Businessand from Sogang University English Literature.
- Held roles of increasing responsibility at Prudential Life, including serving as the Chief Marketing Officer of
1 LG H&H’s adjusted share price as of market close on
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